Why Crescent Point Energy Stock Rallied as Much as 14.5% in Early Trading Today

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Feb 18, 2021 at 11:53AM

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What happened

Shares of energy driller Crescent Point Energy (NYSE:CPG) rose 14.5% in early trading on Feb. 18, though that gain had cooled to a still-notable 9.5% or so by 11 a.m. EST. The big news came out after the close on Feb. 17, when the company made two announcements. 

So what

The first bit of information Crescent Point shared was that it would hold its next earnings call on Feb. 24. That’s a big snore that most probably didn’t take note of because the other fact was that the exploration and production company had bought some Canadian assets from Royal Dutch Shell (NYSE:RDS.B). For reference, Shell’s stock was off by about 2% at roughly 11 a.m. EST.   

Image source: Getty Images.

The numbers are notable here. Crescent Point, a $1.9 billion market cap company, is paying $700 million in cash and 50 million shares to Shell for its Kaybob Duvernay assets in Alberta. The total price tag is $900 million, making it a pretty sizable acquisition for the driller. The deal is expected to close in April. Crescent Point expects the new property to notably increase its cash flow generation, lower its overall royalty rates, and increase its full-year production numbers. Meanwhile, management believes there is at least a decade’s worth of drilling inventory in the project. Investors were, understandably, pleased.  

Now what

In some ways, this is a tale of two companies. Shell, like other big names in the energy sector, is trying to move away from its carbon past and toward a clean energy future. To help fund that transition, it is looking to sell assets. Crescent Point, meanwhile, appears to be taking advantage of the opportunity to add desirable energy assets to its portfolio as it sticks to what it knows — energy exploration and production. In the long run, this might actually turn out to be a win/win deal.